Google’s ad auction may be overcharging advertisers

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 1:07:58

   I think a lot of the consternation... from people reacting to what Max Anderson wrote, which got 5 million views, by the way. And he wrote this through the lens of somebody, and these are his claims, so I don't know if they're true or not, but spending half a million dollars or more a month on Google for years. And he itemized all the ways in which things have changed. And the most important thing that I pulled out of here was what Freeberg mentioned, which is the change in the auction model. So Typically, in a Vickrey auction, what happens is Freeberg bids, I bid. If I'm the underbidder, what happens is Freeberg gets filled at my price because he was the high bidder.

2. 1:08:41

   It's a really great way of doing price discovery. At Facebook, when we built the first ad system, that's essentially what we copied. We copied Google's feature for feature. If now what they're doing is they've abandoned the Vickrey auction, Freeberg's right, you're over earning. And if the market starts to smell that out, they're going to start to wonder what's actually happening underneath the hood. So these claims, which are now well syndicated have been out there since July. And I'm not sure that Google IR has necessarily nipped these in the bud. Because I think what happened was the at least the information war that happened post earnings was recirculating max's post here and saying this has been going on for a while and when you look inside the comments it's a bunch of other people seconding his analysis as accurate

3. 1:09:31

   so without knowing the details jason because i don't spend money in the google ecosystem i think it's really important for google ir to get in front of this because i think if this momentum builds, this idea that this franchise is essentially robbing Peter to pay Paul, like pulling money from the future into the present, to kind of smooth out earnings, the market will react badly to it, you're seeing it today. But then this other problem starts, which is to your point, the composition of ad revenue as a percentage of the overall will fall below a threshold. And then they do look like more of a structured conglomerate, where now you have have a YouTube revenue block, a GCP block, and other bets block and a search block, none are dominant, which in some ways I actually think is better because then you're more diversified and

4. 1:10:21

   you're less levered to any one single business. But they'll have to go through this complicated process where a bunch of folks may not want to own that kind of a business. And there's a different buyer pool. So you have to go through transitioning out the folks that wanted to own a single stock bet on search or ads or whatever it was, and now have to move to this other kind of business model. And when you switch buckets like this, a bunch of folks kind of say, oh, it's too complicated.

5. 1:10:45

   So problem number one is what I would say is, if you were Google IR, please read this and refute it or try to figure out how to get in front of it. Because every analyst now will try to figure out